QA on Incorporation

Section 3 to 22

All questions answers are updated as per the latest amendments.

	3. FORMATION OF COMPANY (2 QUESTIONS)

Notified Date of Section: 01/04/2014

Q.1. Mr. Ram Lai and his friend desire to incorporate a Public Company and approach you for help. Advise. (5 marks; 2007-May)

Answer:

Formation of Company:

Sec. 3 of the Companies Act, 2013 deals with the basic requirement with respect to the constitution of the company. In the case of a public company with or without limited liability any 7 or more persons can form a company for any lawful purpose by subscribing their names to memorandum and complying with the requirements of this Act in respect of registration. Persons who form the company are known as promoters. It is they who conceive the idea of forming the company. They take all necessary steps for its registration.

Formation of a company involves following procedures:

1. Reservation of name by filing e-application.

2. Drafting, signing and Submission of Memorandum of Association to ROC. The documents have to be e-filed and e-stamped.

3. Drafting, signing and submission of Articles of Association electronically. Stamp duty is to be paid electronically.

4. Consent of persons nominated as Directors to act as Directors to be submitted electronically.

5. Submission of statutory declaration of compliance.

6. Obtain certificate of incorporation digitally signed by ROC.

7. Allotment of Corporate Identity Number (CIN) by ROC on and from date mentioned in certificate of incorporation.

Documents to be filed for incorporation of a company [Sec. 7(1)]:

For incorporation of a company, the following documents are to be filed:

1. Memorandum and articles of the Company duly signed by all the subscribers to the memorandum in the manner prescribed.

2. A declaration in the form INC 8 by an advocate, a Chartered Accountant or Company Secretary in practice who is engaged in the formation of the Company any by a person named in the articles as a director, manager or secretary of the Company that all requirements of this Act and the rules made thereunder in respect of registration and matters precedent and incidental thereto have been complied with.

3. An declaration from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in connection with the promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that ail the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief.

4. The address for correspondence till its registered office is established.

5. Particulars of every subscriber to the memorandum alongwith proof of identity as required in Sec. 7(1)(e).

6. Particulars of the persons mentioned in the articles as first directors of the Company, the Director Identification Number, proof of identity as specified in Sec. 7(1)(e).

7. Particulars of the interests of the persons mentioned in the articles as first directors in other firms or bodies corporate alongwith their consent to act as directors of the Company in the manner prescribed.

Certificate of incorporation:

The Registrar of Companies (ROC), on the basis of documents and information furnished under Sec. 7(1) of the 2013 Act registers all documents filed for incorporation of a company and on satisfaction, issues a certificate called ‘Certificate of Incorporation' in prescribed form, No. INC 11 of the Companies (Incorporation) Rules, 2014 to the effect that the company has been incorporated under the Act. [Sec. 7(2) of the 2013 Act].

Certificate of incorporation does not mean all objects are legal: The certificate only proves conclusively that it has been properly incorporated. It does not prove that all the objects mentioned in it are legal or permissible.

Leading Case: Bowman v. Secular Society Ltd.

The certificate cannot validate illegal objects. A company cannot carry out an illegal object even if it is specified in the memorandum, [e.g. if a business or product is reserved for public sector or it requires license, the business cannot be started just because it is mentioned in the memorandum.

Q.2. XYZ a One-Person Company (OPC) was incorporated during the year 2014 -15 with an authorized capital of Rs. 45.00 lakhs (4.5 lakh shares of Rs. 10 each). The capital was fully subscribed and paid up. Turnover of the company during 2014-15 and 2015-16 was Rs. 2.00 crores and Rs. 2.5 crores respectively. Promoter of the company seeks your advice in following circumstances, whether XYZ (OPC) can convert into any other kind of company during 2016-17. Please, advise with reference to relevant provisions of the Companies Act, 2013 in the below mentioned circumstances:

(i) If promoter increases the paid up capital of the company by Rs. 10.00 lakhs during 2016-17

(ii) If turnover of the company during 2016-17 was Rs. 3.00 crores. (4 marks; 2018-Nov)

Answer:

Provision:

As per Rule 3 of Companies (Incorporation) Rules, 2014, One Person Company (OPC) cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation, except where the paid up share capital is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.

Section 18 of the Companies Act, 2013 provides that a company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions of Chapter II of the Act.

Present Case:

XYZ, OPC was incorporated during the year 2014-15 with share capital of forty five lakh rupees. The turnover of the company during 2014-15 and 2015-16 was two crore rupees and two and a half crore rupees respectively. As the XYZ Ltd. is proposed to be converted in other company during 2016- 17. In light of above provision we require the paid up share capital and/or turnover of that relevant period only. So paid up share capital & turnover of the years 2014-15 and 2015-16 is not relevant. The turnover and paid up share capital for 2016-17 needs to be taken into consideration.

Advice:

With reference to the above provisions advice given in following circumstances:

1. If promoter of the company increases the paid up capital by ten lakh rupees in 2016-17, then total paid up share capital of the company happens to be fifty five lakh rupees, so as per above provisions XYZ, OPC can voluntarily convert into other kind of company during 2016-17.

2. if turnover of the company during 2016-17 was three crore rupees it can voluntarily convert in other kind of company as turnover of the company during 2016-17 exceeds two crore rupees.

	3A. MEMBERS SEVERALLY LIABLE IN CERTAIN CASES. (1 QUESTION)

Notified Date of Section: 09/02/2018

Q.1. A public limited company has only seven shareholders. Being all the shares paid in full, one such shareholder purchased all the shares of another shareholder in a private settlement between them reducing the no. of shareholders to six. The company continues to carry on its business thereafter. Discuss with reference to the Companies Act, 2013 the implications of this transaction on the functioning of the company

(5 marks; 2019- June)

	4. MEMORANDUM (1 QUESTION)

Q.2. State whether the following statement is correct or incorrect:

(i) Memorandum of Association is the Charter of the company. (1 mark; 2013-Nov)

Answer:

Correct.

	5. ARTICLES (3 QUESTIONS)

Notified Date of Section: 01/04/2014

Q.1. Answer the following:

A model form of Articles contained in Table ‘F’ relates to a company limited by

(a) Shares

(b) Guarantee

(c) Shares and Guarantee

(d) None of the above (1 mark; 2007 - May)

Answer:

Shares

Q.2. State whether the following statement is true or false and give reasons: (ii) Every Company which is registered under the Companies Act, 2013, need not have their own Articles of Association. (1 mark; 2009 - May)

Answer:

True: As per Sec. 5 (6) of the Indian Companies Act, 2013, a company limited by shares may either frame its own set of articles or may adopt all or any of the regulations contained in Table F.

Q.3. State whether the following statement is true or false and give reasons: The articles of Association of a Company can be altered by passing an ordinary resolution in the meeting of the shareholders. (1 mark; 2009 - Nov)

Answer:

Incorrect: The Articles of association can be altered only by special resolution. This is as per Sec. 14 of the Indian Companies Act, 2013.

	6. ACT TO OVERRIDE MEMORANDUM, ARTICLES, ETC.

Notified Date of Section: 01/04/2014

	7. INCORPORATION OF COMPANY (5 QUESTIONS)

Notified Date of Section: 01/04/2014

Q.1. Minu Limited was incorporated by furnishing false information. As per the Companies Act, 2013, state the power of the Tribunal in this regard. (7 marks; 2017 - Dec)

Answer:

Order of the Tribunal: where a Compaq has been got incorporated by furnishing false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company or by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied that the situation so warrants:

(a)pass such orders, as it may think fit, for regulation of the management of the company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors, or

(b)Direct that liability of the members shall be unlimited, or

(c)Direct removal of the name of the company from the register of companies, or

(d)Pass an order for the winding up of the company, or

(e)Pass such other orders as it may deem fit.

Q.2. One of the subscribers to Memorandum of Association of a company under process of incorporation is a foreign national residing outside India. State the provisions "of Companies Act, 2013 regarding authentication of his signature and address. Will the requirement of business visa be applicable to his case if he is a person of Indian origin or overseas citizen of India? (4 marks; 2017 - Dec)

Answer:

Where subscriber to the memorandum is a foreign national residing outside India:

(a)In a country in any part of the Commonwealth, his signatures and address on the memorandum and articles of association and proof of identity shall be notarized by a Notary (Public) in that part of the Commonwealth.

(b)in a country which is a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity shall be notarized before the Notary (Public) of the country of his origin and be duly apostillised in accordance with the said Hague Convention.

(c)in a country outside the Commonwealth and which is not a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity, shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer empowered in this behalf under Section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948 (40 of 1948) or, where there is no such officer by any of the officials mentioned in Section 6 of the Commissioners of Oaths Act, 1889 (52 and 53 Vic.C.10), or in any Act amending the same;

(d)Visited in India and intended to incorporate a company, in such case the incorporation shall be allowed if, he/she is having a valid Business Visa.

Explanation: For the purposes of this clause, it is hereby clarified that, in case of Person is of Indian Origin or Overseas Citizen of India, requirement of business Visa shall not be applicable.

Q.3. State the documents and information for registration of One Person Company (OPC) required to be filed with the Registrar of Companies. (6 marks; 2016-May)

Answer:

Documents and Information for registration of a One Person Company (OPC):

For the registration of the One Person Company (OPC), following documents and information are required to be filed with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated -

1. Memorandum and Articles:

The Memorandum and Articles of the company duly signed by the subscriber to the Memorandum in such manner as prescribed in Rule 13 of Companies (Incorporation) Rules, 2014. (The Memorandum of OPC shall indicate the name of the other person, who shall, in the event of the subscriber's death or his incapacity to contract, become the member of the company.)

2. Declaration of Compliance:

A declaration in Form No. INC.8 by person who is engaged in the formation of the company (an advocate, a Chartered Accountant, a Cost Accountant or a Company Secretary in practice) and by a person named in the Articles (director, manager or secretary of the company), that all the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.

3. Declaration from Subscribers to Memorandum:

A declaration from the subscriber to the Memorandum and from person named as the first director, if any, in the Articles stating that he is not convicted of any offence in connection with the promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the last five years, and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief.

4. Address for Correspondence:

The address for correspondence till its registered office is established.

5. Particulars of the subscriber:

The particulars (names, including surnames or family names, residential address, nationality) of every subscriber to the Memorandum alongwith the proof of identity, and in the case of a subscriber being a body corporate, such particulars as may is prescribed under Rule 16 of Companies Incorporation Rules, 2014.

6. Particulars of persons mentioned in the Articles:

The particulars (names, Including surnames or family names, the Director Identification Number, residential address, nationality) of persons mentioned In the Articles as the first directors of the company and such other particulars Including proof of identity as is prescribed, under Rule 17 of Companies Incorporation Rules 2014.

7. Particulars of interest of persons:

The particulars of the interests of the persons mentioned in the Articles as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company in such form and manner as is prescribed under Rule 17 of Companies Incorporation Rules, 2014.

Note: Particulars provided in this provision shall be of the individual subscriber and not of the professional engaged in the incorporation of the company (The Companies (incorporation) Rules, 2014).

Q.4. Attempt the following:

(Decide, under the Companies Act, 2013 whether Mr. Prabhu can incorporate a new company using the phrase “Electoral Trust” with the name of the company.

(4 marks; 2014-May)

Answer:

Provision:

According to the Companies Act, 2013, if any person wants to incorporate a new company then the name of the proposed company should be such one that is allowed under the Companies act and Emblems of Names act. The word “Electoral Trust” Is specifically given for the Sec. 8 companies. It means as per Companies Act, 2013, if any person wants to form a Sec. 8 Company then he can use the phrase “Electoral Trust" with the name of the company otherwise he cannot use it. [As per Ministry of Corporate Affairs vide General Circular No. 12/2013 dated 28.06.2013]

Present Case:

Mr. Prabhu wants to incorporate a new company using the phrase “Electoral Trust ” with the name of company. He can do so by complying with the provision of above mentioned circular i.e. only if he wants to form Sec. 8 Company.

Q.5. Which documents are required to be filed with the Registrar of Companies at the time of registration of a company under the provisions of the Companies Act, 2013?

(4 marks; 2011 - May)

Answer:

Documents required to be filed with ROC at the time of Incorporation of company:

As per Sec. 7 of Companies Act, 2013, There shall be filed with the Registrar within whose jurisdiction the registered office of a company is proposed to be situated, the following documents and information for registration, namely:

(a) Memorandum and Article: The Memorandum and Articles of the company duly signed by all the subscribers to the memorandum in such manner as prescribed in Rule 13 of Companies (Incorporation) Rules, 2014.

(b) Declaration of Compliance: A declaration in the Form No. INC.8 by an advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, who is engaged in the formation of the company, and by a person named in the articles as a director, manager or secretary of the company, that ail the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.

(c) Declaration from Subscribers to Memorandum:

An declaration from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in .connection with the promotion,, formation or management of any company, or that he has not beer) found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief.

(d) Address far Correspondence:

The address for correspondence till its registered office is established

(e) Particulars of Subscribers:

The particulars of name, including surname or family name, residential address, nationality and such other particulars of every subscriber to the memorandum along with proof of identity, as may be prescribed and in^ the case of a subscriber being a body corporate, such particulars as is prescribed under Rule 16 of Companies Incorporation Rule 2014.

(f) Particulars of Persons mentioned in Articles:

The particulars of the persons mentioned in the articles as the first directors of the company, their names, including surnames or family names, the Director Identification Number, residential address, nationality and such other particulars including proof of identity as is prescribed under Rule 17 of Companies Incorporation Rule 2014. .

(g) Particulars of Interest of Persons:

The particulars of the interests of the persons mentioned in the articles as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company in such form and manner as is prescribed under Rule 17 of Companies Incorporation Rule 2014.

	8. FORMATION OF COMPANIES WITH CHARITABLE OBJECTS, ETC. (2 QUESTIONS)

Notified Date of Section: 01/04/2014

Q.1. Mr. V, alongwith six other persons desires to float a company for charitable purposes, as permissible under Section 8 of the Companies Act, 2013. He seeks your advise about the procedure to be followed to give effect to the above proposal. Advise him.

(5 marks; 2007 - Nov)

Answer:

Persons/Associations eligible to be registered and licensed as Companies under Sec. 8 of Companies Act, 2013.

A person or association of persons may propose to be registered under the Act as a Limited Company:

(a) with the objects of promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, environment protection or any such other object;

(b) Intends to apply its profits if any, or other income in promoting its objects; and

(c) Intends to prohibit payment of any dividend to its members.

Procedure to Obtain license is given in Companies (Incorporation)

Rules, 2016:

As per Rule 19,

1. A person or an association of persons (hereinafter referred to in this rule as “the proposed company”), desirous of incorporating a company with limited liability under Section 8(1) without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, shall make an application in Form INC-32 (SPICe) [Companies Incorporation) Sixth Amendment Rules, 2019 w.e.f 15^th August, 2019] along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 to the Registrar for a license under sub-section (1) of section 8.

2. The memorandum of association of the proposed company shall be in Form No. INCA 3.

3. The application under sub-rule (1) shall be accompanied by the following documents, namely:

(a) the memorandum and articles of association of the proposed company;

(b) the declaration in Form No. INC.14 by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the memorandum and articles of association have been drawn up in conformity with the provisions of Section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under sec. 8 and matters incidental or supplemental thereto have been complied with;

(c) an estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;

(d) the declaration by each of the persons making the application in Form No. INCA5.

All privileges and obligations of limited companies to apply to ‘Sec. 8 Companies’ [Sec. 8(2)].

The company registered under Sec. 8 shall enjoy all the privileges and be subject to all the obligations of limited companies.

Revocation of license: The Central Government may by order revoke the licence of the company where the company contravenes any of the requirements or the conditions of this sections subject to which a licence is issued or where the affairs of the company are conducted fraudulently, or violative of the objects of the company or prejudicial to public interest and on revocation the Registrar shall put ‘Limited’ or ‘Private Limited’ against the company’s name in the register. But before such revocation, the Central Government must give it a written notice of its intention to revoke the licence and opportunity to be heard in the matter.

Intimation to Registrar of Revocation of License: Where the license is granted to a company registered under Sec. 8 has been revoked, the company shall apply to the Registrar in Form No. INC20 along with the fee to convert its status and change of name accordingly. [Rule 23 of Companies (Incorporation) Rules, 2014]

Q.2. A group of individuals intend to form a club namely 'Budding Pilots Flying Club' as limited liability company to impart class room teaching and aircraft flight training to trainee pilots. It was decided to form a limited liability company for charitable purpose under Section 8 of the Companies Act, 2013 for a period of ten years and thereafter the club will be dissolved and the surplus of assets over the liabilities, if any, will be distributed amongst the members as a usual procedure allowed under the Companies Act. Examine the feasibility of the proposal and advise the promoters considering the provisions of the Companies Act, 2013. (5 marks; 2019-May)

	9. EFFECT OF REGISTRATION

Notified Date of Section: 01/04/2014

	10. EFFECT OF MEMORANDUM AND ARTICLES (1 QUESTION)

Notified Date of Section: 01/04/2014

Q.1. What is the effect of the registration of the Memorandum of Association of a company on

(i) The subscribers of the Memorandum;

(ii) Such other persons as may from time to time become members of the company;

(iii) The company and

(iv) Outsiders dealing with the company? (4 marks; 2014 - June)

Answer:

When the Memorandum of Association of a company has been registered, it has the following effect:-

(i) The signatories become members of the company, the entry of their names in the register of members not being legally necessary and they are bound to observe all the provisions of the memorandum.

(ii) Such other persons as may from time to time become members of the company are bound by the memorandum, as if it had been signed by them, to observe all the provisions thereof.

(iii) The company is bound to observe all the provisions of its memorandum of association, as if it had been signed by the company.

(iv) The memorandum of association of a company is a public document, and every person dealing with the company is deemed to have notice of its contents. If a person deals with a company in a way contrary to its memorandum, he must take its consequences,

	10A. COMMENCEMENT OF BUSINESS ETC.
		11. COMMENCEMENT OF BUSINESS ETC.

Notified Date of Section: 01/04/2014

	12. REGISTERED OFFICE OF COMPANY (1 QUESTION)

Notified Date of Section: 01/04/2014

Q.1. What is the importance of registered office of a company? State the procedure for shifting of registered office of the company from one State to another State under the provisions of the Companies Act, 2013. (8 marks each; 2011 - Nov)

Answer:

Registered Office Clause

State in which registered office will be situated has to be specified in

Memorandum of Association under Registered office clause. Registered

Office is really the permanent address of the company. It is residence of the

company. It decides the domicile of the company.

Registered Office of Company as per Sec. 12.

1. A company shall, within thirty days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it. [Sec. 12(1)].

2. The company shall furnish to the Registrar in Form No. INC. 22 verification of its registered office within a period of thirty days of its incorporation in such manner as is prescribed under Rule 25 of Companies Incorporation Rules, 2014.

3. Every company shall -

(a) Paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed therefor are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages; [Sec. 12(3)(a)].

(b) Have its name engraved in legible characters on its seal, if any; [Sec. 12(3)(b)].

(c) Get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e- mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications; and

(d) Have its name printed on hundies, promissory notes, bills of exchange and such other documents as may be prescribed.

Importance of Registered Office Clause

Companies Act, 2013 and other Acts provide great importance to registered office. It actually decides domicile of a company.

1. Serving of notice on company: Any document can be served on a company by sending it by post under certificate of posting or by registered post or by speed post or courier or by hand delivery, or by means of such electronic or other mode as is prescribed under Rule 35 of Companies (Incorporation) Rules, 2014 at the registered office. [Section 20(1)]

2. Holding of AGM: Annual General Meetings of company must be held either in registered office, or in city/town/village in which registered office is situated. [Sec. 96(2)].

Provided that annual general meeting of an unlisted company may be held at any place in India if consent is given in writing or by electronic mode by all the members in advance: [Inserted by Companies (Amendment) Act, 2017]

3. Publications of advertisements: Following advertisements have to be published in newspapers in the district/State where registered office is situated:

(a) Advertisement Inviting public deposits should be published in one English and one vernacular newspaper in the State in which registered office is situated.

(b) Notice of closure of register of members and debenture holders is to be published in newspaper circulating in the district in which the registered office of the company is situated.

4. Depositing proxy, notice of EOGM, circular resolution: Proxy for meeting have to be deposited at registered office of the company. [Article 57 of Model Articles of Association Table-F of the 2013 Act] Sec. 100(2) of the Companies Act, 2013 provides for requisition of meeting by members. Though section does not specifically say so, as per Sec. 20, of the Companies Act, 2013 the requisition has to be submitted at registered office of the company.

If members want to circulate a resolution under Sec. 111 of the 2013 Act, they have to deposit requisition in writing at registered office.

Change of Registered Office from one State to another

In order to the change its registered office from one State to another the

Companies Act, 2013 lays down the following steps and procedure:

1. Resolution of the Board of Directors: The first step in changing registered office is that the Board of Directors must adopt a resolution to that effect and convene a general meeting of members in which the change is approved.

2. Special resolution: A special resolution must be passed by the company in the general body meeting of shareholders/members. [Sec. 13(1)]

3. Approval of the Central Government (Power now delegated to Regional Director vide Notification No. SO 4090(E) dt. 19-12-2016 w.e.f -19.12.2016): The alteration of the Memorandum relating to the change of the registered office from one state to another shall not have any effect, unless it is approved by the Central Government (Power now delegated to Regional Director vide Notification No. SO 4090(E) dt. 19- 12-2016 w.e.f 19.12.2016) on an application in Form INC. 23 and in such manner as is prescribed in Rule 30 of Companies (Incorporation) Rules, 2014. Hence, the company will have to make the required application after the name is approved by the members by special resolution. [Sec. 13(4)]

4. Disposal of application: The Central Government (Power now delegated to Regional Director vide Notification No. SO 4090(E) dt. 19- 12-2016 w.e.f 19.12.2016) shall dispose of the application within sixty days and before passing its order, it may satisfy itself that the alteration has the consent of creditors, debentureholders and other persons concerned with the company, or that adequate provisions have been made by the company either for the due discharge of their liabilities or adequate security has been provided for such discharge. [Sec. 13(5)]

5. Registration with Registrar: The company shall file a certified copy of the Central Government (Power now delegated to Regional Director vide Notification No. SO 4090(E) dt. 19-12-2016 w.e.f 19.12.2016) order approving the alteration with the Registrar of each of the States in Form No. INC 28 along with the fees within 30 days from the date of receipt of certified copy of order, who shall register the same. The Registrar of the State where the registered office is being shifted to shall issue a fresh certificate of incorporation indicating the alteration. [Sec. 13(7)]

	13. ALTERATION OF MEMORANDUM (5 QUESTIONS)

Notified Date of Section: 01/04/2014

Q.1. Pluto Ltd. was incorporated on 10^th June, 2013 in Delhi and is engaged in the business of providing specialized catering services for corporate events. The Board of directors proposed to venture into event management services, which requires the alteration of the object clause of the Memorandum of Association of the company. Draft the necessary resolution assuming relevant data.

(4 marks; 2019 - June)

Q.2. Explain the procedure for change of name of a company, as provided in the Companies Act, 2013. (8 marks; 2012-May)

Answer:

Procedure for the change of name under the Companies Act, 2013 and Rule 33 of Companies (Incorporation) Rules, 2014:

According to Sec. 13(1) of the Companies Act, 2013, a company may by special resolution and after complying with the procedure specified in this section after the provisions if its Memorandum.

The Name Clause in the Memorandum states the name of the company. It can be changed in the following manner:

1. Resolution of the Board of Directors: The first step in changing Name is that the Board of Directors must adopt a resolution to that effect and convene a general meeting of members in which the change is approved.

2. Special Resolution: A Special Resolution for name change must be passed by the company in the General Meeting of shareholder’s or members.

3. The change in name must be in accordance with the provisions of Sec. 4(2) and (3): These sub sections prohibit a company from registering with a name similar to an existing company’s name or with names listed as undesirable by the Act.

4. Approval of Central Government (Power now delegated to ROC vide Notification No. S0 1353(E), dated. 21 -05-2014, w.e.f 21.05.2014: Any

change in the name of a company shall be effected only with the approval of the Central Government (Power now delegated to ROC vide Notification No. SO 1353(E), dated. 21-05-2014, w.e.f 21.05.2014 in writing by filing Form No. INC 24.

However, no such approval shall be necessary where the change in the name of the company is only the deletion therefrom or addition thereto, of the word “Private”, on the conversion of any one class of companies to another class. However finder Sec, 14 and Rule 33, for alteration of AOA in case of conversion from private to Public Company and vice versa, approval of Central Government Power now delegated to ROC vide Notification No. SO 1353(E), dated. 21-05-2014, w.e.f 21.05.2014, shall be obtained by filing Form No. INC.27.

5. Documents to be filed: The documents are required to be filed with the Registrar, who will then register the new name in place of the old name of the company and issue a fresh certificate of incorporation in the new name.

The documents are:

(i) Special Resolution passed by company under Sec. 13(1).

(ii) Approval of Central Government under Sec. 13(2) (Power now delegated to ROC vide Notification No. SO 1353(E), dated. 21 -05- 2014, w.e.f 21.05.2014).

6. Entry in Register of Companies by Registrar: On any change in the name of a company, the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate in Form No. INC.25 of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate.

7. Restrictions: The change of name shall not be allowed to a company which has defaulted in filing its annual returns or financial statements or any document due for filing with the Registrar or which has defaulted in repayment of matured deposits or debentures or interest on deposits or debentures. [The Companies (Incorporation) Rules, 2014]

Q.3. Explain the provisions of law and procedure relating to alteration of object clause stated in the Memorandum of Association of a company under Indian Companies Act, 2013. (8 marks; 2012-Nov)

Q.4. Rishi Pharmacy Ltd. decided to take up the business of food processing because of the downward trend in pharmacy business. There is no provision in the object clause of the Memorandum of Association to enable the company to carry on such business. State whether its object clause can be amended? Mention briefly the procedure to be adopted for change in the object clause. (5 marks; 2016 - May)

Q.5. The object clause of the Memorandum of Vardhman Industries Ltd., empowers it to carry on real-estate business and any other business that is allied to it. Due to a downward trend in real-estate business the management of the company has decided to take up the business of Food processing activity. The company wants to alter its Memorandum, so as to include the Food Processing Business in its objects clause.

State whether the company can make such change as per the provisions of the Companies Act, 2013? (4 marks; 2017-May)

Answer:

Alteration of Object Clause:

According to Sec. 13(1) of the Companies Act,. 2013, a company may be special resolution and after complying with the procedure specified in this section alter the provisions of it’s MOA.

The Object Clause can be altered in the following way:

1. Resolution of Board of Directors: The first step in altering object is that the BOD must adopt a resolution to that effect and convene a general meeting of members in which the alteration is approved.

2. Special Resolution: Change in object clause can be effected simply by passing a special resolution in general meeting of members. [Sec. 13(1) of the 2013 Act].

3. Filing with ROC: The special resolution should be filed with ROC in Form No. MGT 14 within thirty days from the date of resolution [Sec. 13(6)(a) of the 2013 Act],

4. Entry in Register of Companies by ROC: The Registrar will register the document and then only the alteration becomes effective. [Sec. 13(10) of the 2013 Act]

5. Special provision in case of listed Company which has raised money from public and has unutilised amount out of money so raised.

(i) Passing Special Resolution by Postal Ballot

(ii) Notice to Shareholders

Notice in respect of the Resolution for altering the objects shall contain the following particulars:

(a) the total money received,

(b) the total money utilized for the objects stated in the prospectus,

(c) the unutilized amount out of the money so raised through prospectus,

(d) the particulars of the proposed alteration or change in the objects,

(e) the justification for the alteration or change in the objects,

(f) the amount proposed to be utilised for the new objects,

(g) the estimated financial impact of the proposed alteration on the Earnings & Cash Flow of the Company,

(h) the other relevant information which is necessary for the members to take an informed decision on the proposed resolution,

(i) the place from where any Interested person may obtain a copy of the Notice of the Resolution to be passed.

(iii) Publication in Newspaper

(a) Details of the resolution shall be published in the Newspapers (one in English and one in vernacular language) which is in circulation at the place where the Registered Office of the Company is situated.

(b) The Advertisement giving details of each resolution to be passed for change in objects shall be published simultaneously with the despatch of Postal Ballot Notices to Shareholders.

(iv) Placing on Website of Company

The Notice shall also be placed on the Website of the Company, if any.

(v) Opportunity to Dissenting Shareholders

Dissenting Shareholders shall be given an opportunity to exit by the Promoters and Shareholders having control, in accordance with SEBI Regulations.

14. ALTERATION OF ARTICLES (1 QUESTION)

Notified Date of Section: 01/04/2014

Q.1. The Board of Directors of Sindhu Limited wants to make some changes and to alter some Clauses of the Articles of Association which are to be urgently carried out, which include the increase in Authorized Capital of the company, issue of shares, increase in borrowing limits and increase in the number of directors.

Discuss about the provisions of the Companies Act, 2013 to be followed for alteration of Articles of Association.

Answer:

Alteration in Articles of Association:

Section 14 of the Companies Act, 2013, vests companies with power to alter or add to its articles. The law with respect to alteration of articles is as follows:

(1) Alteration by special resolution: Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution alter its articles.

(2) Filing of alteration with the registrar: Every alteration of the articles and a copy of the order of the Central Government approving the alteration, shall be filed with the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such manner as may be prescribed, under Rule 33 of the Companies (Incorporation) Rules, 2014 who shall register the same.

(3) Any alteration made shall be valid: Any alteration of the articles registered as above shall, subject to the provisions of this Act, be valid as if it were originally contained in the articles.

(4) Alteration noted in every copy: Every alteration made in articles of a company shall be noted in every copy of the articles, as the case may be. If a company makes any default In complying with the stated provisions, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of the articles issued without such alteration. [Section 15]

15. ALTERATION OF MEMORANDUM OR ARTICLES TO BE NOTED IN EVERY COPY

Notified Date of Section: 01/04/2014

16. RECTIFICATION OF NAME OF COMPANY (2 QUESTIONS)

Notified Date of Section: 01/04/2014

Q.1. India Cosmetics Limited was a registered company Under Indian Companies Act, 2013. Later on, another company, India Cosmetics and Assessories Limited was formed and registered. Being similarity in the names of both Companies, India Cosmetics Limited lodged the complaint against India Cosmetics and Assessories Limited to the Registrar of Companies stating that there is sufficient similarity between these two names which may mislead or defraud to the public. India Cosmetics and Accessories Limited is intending to alter its name.

Advice the India Cosmetics and Accessories Limited to alter the name of the Company according to the provisions of the Companies Act, 2013. (5 marks; 2009-May)

Answer:

Provision:

Sec. 13(1) of Indian Companies Act, 2013, provides that the name of a company may be changed at any time by passing a special resolution at a general meeting of the company.

As per Sec. 13(2), any change in the name of a company shall be subject to the provisions of sub-section (2) and (3) of Sec. 4 and shall not have effect except with the approval of Central Government in writing (Power delegated to ROC vide Notification No. SO 1353(E), dated 21.05.2014 w.e.f. 21.05.2014)

Rectification of name of company in case of similarity of Names Sec. 16, provided that if, through inadvertence or otherwise, a company on its first registration or on its registration by a new name, is registered by a name which -

In the opinion of the Central Government (Power now delegated to Regional Director vide Notification No. SO 4090(E) dt. 19-12-2016 w.e.f 19.12.2016), is identical with or too nearly resembles the name by which a company in existence had been previously registered, whether under this Act or any previous company law, it may direct the company to change its name and the company shall change its name or new name, as the case may be, within a period of three months from the issue of such direction, after adopting an ordinary resolution for the purpose [Sec. 16(1)(a)].

Present Case:

The problem asked in the question is based upon the provision of Sec. 16(1)(a) of the Companies Act, 2013. The new company registered under the name India Cosmetics Accessories Ltd. is identical in name with the existing India Cosmetics Limited. According to the aforesaid provisions of Sec. 16(1)(a) the newly setup company should change its name. In such a case, the company can, on Its own, change the name by obtaining previous approval of Central Government (Power now delegated to Regional Director) and then by passing an ordinary resolution. Such a change should be made within three months of the date of the direction of the Regional Director being received or such longer period as the Regional Director may deem fit to allow. The application for changing the name is required to be made to the Registrar of Companies in e-form INC 1 with a fee of one thousand rupees, [w.e.f 24. 7. 2011]

Q.2. What restrictions are applicable under the Companies Act, 2013 when Articles of Association of a company are altered? (8 marks; 2014 - May)

Answer:

Limitations to alteration: The alterations made in the articles will be valid, until they fall within any one of the following categories given below:

1. The alteration must not authorise anything expressly or impliedly forbidden by the Companies Act.

2. The alteration must not exceed the power or modify the memorandum.

3. The alteration must not contain anything illegal.

4. The alteration must not be inconsistent with any alteration made by Central Government when its has passed order under oppression and Mis-management.

5. The alteration must be bona fide for the benefit of the Company as a whole.

6. The alteration must not make the articles unalterable as it is regarded bad in law.

7. Retrospective operation of articles.

8. The alteration must not constitute a fraud on the minority by a majority.

9. An alteration of articles to effect a conversion of a public company into a private company cannot be made without the approval of the Central Government.

10. There cannot be alteration of the articles so as to compel an existing member to take or subscribe for more shares or in any way extend liability to contribute to share capital, unless he gives his consent in writing.

11. A company cannot justify breach of contract with third parties or avoid a contractual liability by altering articles.

12. An alteration should not increase the liability of a member unless he has agreed thereto in writing.

17. COPIES OF MEMORANDUM, ARTICLES, ETC., TO BE GIVEN TO MEMBERS

Notified Date of Section: 01/04/2014

18. CONVERSION OF COMPANIES ALREADY REGISTERED (3 QUESTIONS)

Notified Date of Section: 01/04/2014

Q.1. Board of Directors of a private company decided to convert it into a public company. State the steps to be taken for such conversion in order to comply with the requirements under the Companies Act, 2013. (5 marks; 2007-Nov)

Q.2. Describe the procedure for converting a private company into a public company under the provisions of the Companies Act, 2013. (8 marks; 2011 - May)

Answer:

Conversion of Private Company into Public Company [Sec. 14]: Where a private company alters its articles by passing special resolution in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company, then such company shall cease to be a private company from the date of such alteration. [1^st Proviso]

"Provided further that any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is approved by an order of the Central Government on an application made in such form and manner as may be prescribed:

Provided also that any application pending before the Tribunal, as on the date of commencement of the Companies (Amendment) Act, 2019, shall be disposed of by the Tribunal in accordance with the provisions applicable to it before such commencement"

Filing with the Registrar: Every alteration of the articles and a copy of the order of the Central Government approving the alteration shall be filed with the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such manner as is prescribed, under Rule 33 and Form No. INC 27 of the Companies (Incorporation) Rules, 2014, who shall register the same. Any alteration of the articles registered as above shall, subject to the provisions of this Act, be valid as if it were originally in the articles.

If a private company is converted into a public company, it will have to make the following consequential changes:

1. Change name clause of memorandum of association by deleting the word private from its name.

2. Increase its directors to three.

3. Increase its number of members, to seven.

4. Delete those clauses from articles which are not suitable for a public company.

5. Give notice to ROC.

Q.3. State whether Correct or Incorrect.

If the Central Government permits, a public company can be converted into a private company. (1 mark; 2011 - Nov)

Answer:

Correct

19. SUBSIDIARY COMPANY NOT TO HOLD SHARES IN ITS HOLDING COMPANY (5 QUESTIONS)

Notified Date of Section: 12/09/2013

Q.1. ABC Ltd. holds 75% equity share capital of DEF Ltd. and controls composition of Board of Directors of DEF Ltd. ABC Ltd. goes for public issue for raising further share capital. Board of Directors of ABC Ltd. allot 10% of the issue to DEF Ltd. Referring to the provisions of the Companies Act, 2013 examine the validity of Board's decision to allot 10% of issue to DEF Ltd. DEF Ltd. holds certain number of shares as a legal representative of a deceased member of ABC Ltd. and has a right to vote at a general meeting of ABC Ltd. in respect of such shareholdering, will this right be affected by issue of 10% to DEF Ltd. by ABC Ltd.? (4 marks; 2017 - Dec)

Answer:

In accordance with the provisions of the Companies Act, 2013, as contained in Section 19(1), a subsidiary company shall not either by itself or through its nominees hold shares in its holding company and no holding company shall allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall be void.

Therefore, ABC Limited cannot allot 10% shares of public issue to DEF Limited, in view of the above provisions. Allotment of shares to DEF Limited shall be void.

Further, in the following circumstances, where a subsidiary can hold the shares of its holding company:

1. Where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or

2. Where the subsidiary company holds such shares as a trustee; or

3. Where the subsidiary company is a shareholder even before it became a subsidiary company of its holding company.

The subsidiary company, however, as referred above shall have a right to vote at a meeting of the holding company only in respect of the shares held by it as a legal representative or as a trustee.

Q.2. Vayu Ltd. holds more than 50% of nominal value of the equity capital of Stream Ltd. In these circumstances, Stream Ltd. wants to become a member of Vayu Ltd. Can Stream Ltd. do so? Discuss the rights of the said subsidiary in such a case.

(4 marks; 2009 - Dec) [CSEM - II]

Answer:

Q.3. State, giving reasons, whether the following statement is correct or incorrect: (iii) A Subsidiary Company cannot hold shares of its Holding Company. (1.5 marks; 2016-May)

Answer:

The given statement is incorrect.

Sec. 19 of the Companies Act, 2013 states exceptions under which subsidiary company can hold shares in its holding company. These are - (a) where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or

(b) where the subsidiary company holds such shares as a trustee, or

(c) where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.

Q.4. Anson Limited held equity shares in Booban Limited. Later on Anson Limited became a subsidiary company of Booban Limited. Decide under the Companies Act, 2013 whether it is necessary for Anson Limited to surrender the equity shares of Booban Limited? (5 marks; 2014 - May)

Answer:

Subsidiary company not to hold shares in its holding company:

According to Sec. 19 of the Companies Act, 2013, no company shall either by itself or through its nominees.

(i) hold any shares in its holding company; and

(ii) no holding company shall allot or transfer its shares to any of its subsidiary companies; and

(iii) any such allotment or transfer of shares of a company made to its subsidiary company shall be void.

Following are the exceptions:

(a) where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or

(b) where the subsidiary company holds such shares as a trustee; or

(c) where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company.

Present Case:

Anson Limited held equity shares in Booban Limited. Lateron Anson Limited became a subsidiary company of Booban Limited.

Following the provisions of Sec. 19 of the Companies Act, 2013, it is not necessary for Anson Ltd. to surrender the equity shares of Booban Ltd. as Anson Ltd. held equity shares before it became a subsidiary company.

Q.5. As at 31^st March, 2018, the paid-up share capital of S Ltd. is Rs. 1,00,00,000 divided into 10,00,000 equity shares of Rs. 10 each. Of this, H Ltd. is holding 6,00,000 equity shares and 4,00,000 equity shares are held by others. Simultaneously, S Ltd. is holding 5% equity shares of H Ltd. out of which 1 % shares are held as a legal representative of a deceased member of H Ltd. On the basis of the given information, examine and answer the following queries with reference to the provisions of the Companies Act, 2013:

(i) Can S Ltd. make further investment in equity shares of H Ltd. during 2018-19?

(ii) Can S Ltd. exercise voting rights at Annual general meeting of H Ltd.?

(iii) Can H Ltd. allot or transfer some of its shares to S Ltd.? (4 marks; 2019 - May)

20. SERVICE OF DOCUMENTS (1 QUESTION)

Notified Date of Section: 01/04/2014

Q.1. Answer the following:

Discuss the provisions of law contained in the Companies Act, 2013 as regards to the service of documents. (4 marks; 2012 - Nov)

Answer:

Serving of Documents

Rule 35 of Companies (Incorporation) Rules, 2014:

A document may be served on a company or an officer, the ROC or any member through electronic transmission.

Electronic transmission means a Communication

(a) delivered by: .

(i) facsimile telecommunication or e-mail when directed to the Facsimile Number or E-Mail Address, respectively, which the Company/Officer /ROC/ Member has provided from time to time for sending communications to the company / Officer/ ROC/Member respectively,

(ii) posting of an Electronic Message Board or Network that the Company/Officer/ROC/Member has designated for such communications, and which transmission shall be validly delivered upon the posting, or

(iii) other means of electronic communication, in respect of which the Company/Officer/ROC/Member has put in place reasonable systems to verify that the Sender is the person purporting to send the transmission, and,

(b) that creates a record that is capable of retention, retrieval and review, and which may thereafter be rendered into clearly legible tangible form.

Again as per Rule 35(5), Courier (as mentioned in Sec 20) means: a document sent through a courier which provides proof of delivery.

In case of delivery by post

Such service shall be deemed to have been effected.

(i) in the case of a notice of a meeting at the expiration

(ii) In the case of a notice of a meeting, at the completion of forty-eight hours after the letter containing the same is posted and,

(iii) In any other case, at the time at which the letter would be delivered in the ordinary course of post.

21. AUTHENTICATION OF DOCUMENTS, PROCEEDINGS AND CONTRACTS

Notified Date of Section: 12/09/2013

22. EXECUTION OF BILLS OF EXCHANGE, ETC.

Notified Date of Section: 12/09/2013